Deripaska is not the only Russian to buy into Montenergo's economy. Photograph: Tony Eveling/Alamy

Every move Oleg Deripaska makes as he struggles to cope with the devastating consequences of the financial crisis is being watched around the globe by his creditors, industrial rivals and - in Britain - swaths of the general public, intrigued by his links to the business secretary, Peter Mandelson, and the shadow chancellor, George Osborne.

Nowhere, though, is the Russian metals mogul under closer scrutiny than in the little Mediterranean republic of Montenegro, where one of his subsidiaries accounts for 14% of the country's GDP and more than half its exports. The Kombinat Aluminijuma Podgorica (KAP), an aluminium plant on the outskirts of the capital, exerts what Montenegro's economic development minister, Branimir Gvozdenovic, calls a "huge influence" on a nation with a smaller population than Leeds.

"Almost 3,000 people work at the plant itself and many smaller companies rely on it," he said. Nearly 1,000 more are employed at a bauxite mine that supplies KAP with its raw materials. Deripaska's Central European Aluminium Company (CEAC), which owns the plant and the mine, reckons that "counting household members, more than 50,000 people depend on KAP for their incomes" - almost one in 10 of Montenegro's estimated 680,000 population.

Yet ever since being sold to Vladimir Putin's favourite oligarch in a privatisation three years ago, KAP has been causing Deripaska headaches. As the storm broke over international financial markets this autumn, there were rumours that the Russians might be considering shutting KAP altogether.

A spokesman in Moscow told the Guardian this week that "currently, CEAC has no plans to cease all aluminium production at the plant". But he revealed for the first time that "in response to current metal prices and cost pressures, CEAC plans gradually to reduce output by up to 10%".

The rescheduling of maintenance programmes, together with what he called "other cost-reduction initiatives and some earlier unscheduled maintenance", would clip 20,000 tonnes off the plant's expected 2008 output of 120,000 tonnes. The announcement represented a drastic reversal of the company's strategy, which was to raise production in stages to 156,000 tonnes.

Deripaska's difficulties with his creditors are just the latest addition to a toxic mix that includes soaring energy costs, claims of deception and a widespread concern among Montenegrins that the Russians, who have already bought up large stretches of the coastline, are bent on colonising their country.

Scarcely had the bubbles gone out of the champagne poured to celebrate the KAP deal than Deripaska's people began to suspect they had been tricked. Their spokesman said that, in May 2006, six months after paying out €48.5m (£38m) for the state's holding, CEAC had sent the government a notice complaining of "breaches of representations and warranties" in the purchase agreement.

Dirty KAP

Among other things, the Russians complained that they had been told the 2004 accounts were in order and that the firm contained working capital. Post-merger due diligence showed this was "largely incorrect or inaccurate", the spokesman said. After failing to reach an agreement with the government, CEAC took its claim to a German arbitration tribunal in August.

Gvozdenovic pooh-poohs the idea that Deripaska's group - "one of the leaders in the aluminium industry" - could have been hoodwinked. "They had their offices in the plant before they became the owners of it," he said. "They were able to see all the documentation during the [privatisation] process. They were fully aware of the situation."

There have been claims in the local media that the Russians are trying to slide out of costly undertakings to clean up KAP, Europe's most delapidated aluminium facility. Thick black plumes of smoke rise from its chimneys, making it plain to holidaymakers arriving at the nearby airport that all is not quite as it should be in a nation that markets itself as the world's "first ecological state". Gvozdenovic would not comment other than to say that the purchase agreement had "precise guarantees for a programme of environmental protection and we require them to comply with those clauses".

Power struggle

CEAC says it has already spent €8.1m on two of the three stages in a €20m programme that, among other things, will eventually capture all but 1.5-2% of the gases emitted by the plant. But the Russians make no secret of the fact that they are sweating under the burden of increased electricity costs.

Two-thirds of the 1.9m megawatt-hours they need comes from the electricity utility at prices subsidised to the end of 2010, but which are nevertheless tied to rising aluminium prices. The rest has to be imported from abroad. By the end of last year, it was costing CEAC double the subsidised price and within a couple of years it could easily be another 25% higher, the company said.

Deripaska's group won a tender for Montenegro's only big coal-fired power station, but last year the purchase was blocked by parliament on grounds of national energy security. "As a result," said the company, "KAP is left without a long-term supply of competitively priced electricity."

One of the oligarch's favourite pastimes is to sail the vast yacht on which he hosted George Osborne and Peter Mandelson along Montenegro's heavenly coastline. But he must now rue the day he ventured inland.

Backstory

At 40, Oleg Deripaska, is reputedly Russia's richest man - or was until the crash in equity prices last month wiped 36% off the value of shares in Moscow. His difficulties were highlighted - and alleviated - last week when he took a $4.5bn (£2.8bn) loan from Russia's central bank funds to repay a syndicate of foreign banks, including Royal Bank of Scotland. Though politically sensitive, his investment in Montenegro represents only a small part of his huge empire, built around United Company Rusal, the world's largest aluminium and alumina producer.